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Paladin Resources (PLR)

  Print      Mail a friend       Annual reports

Tuesday 10 September, 2002

Paladin Resources

Interim Results

Paladin Resources PLC
10 September 2002

                             PALADIN RESOURCES plc
                          ("Paladin" or "the Company")

              Interim Results for the half year ended 30 June 2002

Paladin, the oil and gas exploration and production company with interests in
the UK, Norway, Denmark, Indonesia, Romania, Tunisia and the United States
announces its interim results for the half year ended 30 June 2002.

HIGHLIGHTS

  • Record interim results:

    -         Average production increased 72% to 26,912 boepd (1H 2001: 15,636
              boepd)
    -         Turnover increased 52% to £75.7 million (1H 2001: £49.8 million)
    -         Operating profit increased 29% to £33.2 million (1H 2001: £25.7
              million)
    -         Earnings per share increased 25% to 4.05p (1H 2001: 3.24p as restated)

  • Commencement of dividend payments:

    -         The Board has commenced payment of a dividend with an interim 
              dividend of 0.5  pence to be paid in October and an anticipated 
              final dividend of 1.0 pence for 2002

  • Activity highlights:

    -         Development approval for key assets in the UK and Danish sectors 
              of the North Sea
    -         £56 million of acquisitions to build on established positions in 
              the UK, Norway, and Denmark
    -         Oil discovery in southern Tunisia
    -         New US$250 million debt facility offers substantial headroom for
              further growth

•        Production in fourth quarter of 2002 expected to average 35,000 boepd.
Annualised average production for 2002 expected to be 30,000 boepd compared to
18,255 boepd in 2001.

Malcolm Gourlay, Chairman of Paladin, commented:

"Paladin has continued its five year track record of excellent growth through
the first half of 2002 as a result of the performance of our existing assets
combined with further acquisitions.

The recently announced oil discovery in southern Tunisia is the first
significant success for the exploration element of our corporate strategy.

The new debt facility provides substantial headroom to fund further growth and
the commencement of a dividend payment confirms our confidence in the future
performance of the Company."

10 September 2002

ENQUIRIES:

Paladin Resources plc                                  Tel: 020 7534 2900
Roy A. Franklin, Chief Executive

College Hill                                           Tel: 020 7457 2020
James Henderson
Archie Berens





                              CHAIRMAN'S STATEMENT



Introduction

The first half of 2002 has been another very successful period for Paladin.
Production and financial performance have been raised to new record levels
despite a 12.5 per cent fall in realised product prices. Significant milestones
have been passed in the development of key assets and further acquisitions have
strengthened our position in the UK, Norwegian and Danish sectors of the North
Sea. Last but by no means least, the Company has recently announced a very
encouraging exploration discovery in southern Tunisia.

The Company has also completed a successful debt refinancing exercise with a new
US$250 million syndicated revolving credit facility led by J.P. Morgan plc,
providing significant headroom to fund further growth.

Paladin's production and reserves base has grown rapidly, albeit in measured
fashion, over the last five years through the consistent application of strict
investment criteria for screening acquisition opportunities. This growth trend
is set to continue, as Paladin actively manages its assets.

Dividend

After due consideration of the scale and diversity of the Group's cash flow and
future prospects, your Board has decided that it is appropriate to commence
payment of a dividend. It is intended that the level of dividend payment will be
progressive in real terms but also sustainable in the event that oil prices fall
back to the US$ mid-teens per barrel. An interim dividend of 0.5 pence per share
will be paid on 18 October to those shareholders on the register on 27 September
2002. In the absence of unforeseen circumstances, the Board will recommend
payment of a final dividend of 1.0 pence per share for 2002 to shareholders for
approval at the next Annual General Meeting.

Results

In the six months to 30 June 2002, turnover increased by 52 per cent to £75.7
million, compared to £49.8 million for the first six months of 2001. Operating
profit for the period was £33.2 million (1H 2001: £25.7 million). Net interest
paid was £1.7 million (1H 2001: £1.9 million), resulting in a pre-tax profit of
£31.6 million, as compared to £23.8 million for the same period last year, an
increase of 33 per cent. After a tax charge of £21.3 million, the retained
profit for the period was £10.3 million (1H 2001 restated: £6.8 million, full
year 2001 restated: £10.8 million), representing earnings of 4.05 pence per
share, as compared to 3.24 pence per share (as restated) for the first six
months of 2001.

Restatement of prior periods

In December 2000, the Accounting Standards Board issued Financial Reporting
Standard (FRS) 19, 'Deferred Tax', which has been adopted by the Group for the
first time in the first half of 2002. The effect of this standard is a move from
partial to full provisioning for deferred tax. The Group has elected to make
provision on the more conservative undiscounted basis. The implementation of the
standard has resulted in a prior year adjustment, which has decreased
shareholders' funds and increased provisions of the Group by £10.9 million at 1
January 2002. Comparatives have been restated and consequently at 30 June 2001
and 31 December 2001, reserves have decreased and provisions increased by £3.6
million and £7.5 million respectively.

Effect of change in UKCS taxes

The rate of corporate tax applying to UKCS profits was increased from 30 per
cent to 40 per cent with effect from 17 April 2002. This change increases the
tax charge for the six months to 30 June 2002 by £0.9 million, including a £0.5
million revaluation of the opening deferred tax balance. The acceleration of
capital allowances introduced at the same time means that the net short term
cash flow effect of these fiscal changes on Paladin is neutral to positive.
Nevertheless, we believe the tax rate increase to be ill-conceived as it
engenders fiscal uncertainty, which will erode the stability vital for industry
and investors when conducting activities in a mature hydrocarbon province such
as the UKCS.

Operations

Net production for the half year was 4.5 million barrels of oil and NGLs, and
2.1 billion standard cubic feet of gas, an average of 26,912 boepd, and an
increase of 72 per cent from 15,636 boepd over the same period in 2001.

United Kingdom

Overall, our UK interests contributed 2,518 boepd to total Group production in
the first half of the year (1H 2001: 1,468 boepd), with both the Blake Field
(Paladin 2.4 per cent) and the Bittern Field (Paladin 2.4 per cent) performing
in line with expectations.

A development plan for the flank area of the Blake Field is scheduled for
approval by  partners in the near future, with first production anticipated in
the second half of 2003. The Company recently announced the acquisition of a
14.49 per cent interest in the Ross Field, adjacent to the Blake Field. Ross
provides Blake with process and export facilities in return for the payment of a
tariff. This acquisition, which is expected to complete by early October, will
not only broaden our UK portfolio, but also increase our exposure to the
performance of the Blake Field through tariff revenues.

Formal government approval for the development of the Goldeneye Field was
announced in mid-March; at the same time, the Company announced the acquisition
of a further 22.5 per cent interest in Block 20/4b, thereby increasing its stake
in the Goldeneye Field from 3.0 per cent to 7.5 per cent, subject to
redetermination. Paladin has since been approved as operator of Block 20/4b.
With the exception of the drilling contract, which is to be awarded in the near
future, all major contracts have now been placed and the project is well
underway and within budget. First production is scheduled for the second half of
2004.

In the 20th Offshore Licensing Round, Paladin was awarded three out of the four
blocks for which it applied. Paladin has a 20 per cent interest in Blocks 15/
18b, 15/19b and 15/28c in the Central North Sea, with work programmes involving
seismic and exploration drilling activity during the next two years.

Norway

Overall, our Norwegian interests contributed 9,914 boepd to total Group
production in the first half of the year (1H 2001: 7,694 boepd).

First half production from the Njord Field (Paladin 7.5 per cent increasing to
15 per cent) and the Veslefrikk Field (Paladin 9 per cent) was broadly as
forecast, with net production substantially increasing in early June on
completion of the acquisition from the Norwegian State of interests in the Brage
Field (20 per cent) and the Njord Field (7.5 per cent). Current production from
our Norwegian interests is approximately 16,500 boepd, with the Brage Field, in
particular, performing ahead of our expectations at the time of acquisition.
Paladin is actively working with the operators of the Brage, Njord and
Veslefrikk Fields to identify further investment opportunities in all three
fields, as well as the scope for reducing operating costs.

In mid-July, the Company announced the acquisition, subject to regulatory
approval, of a 35 per cent interest in Block 1/2 and a 20 per cent interest in
Block 7/1. Block 1/2 contains an extension of the UKCS Blane Field and, in
addition, several exploration prospects and leads at Tertiary, Jurassic and
Triassic levels. An appraisal well on the Blane discovery, in addition to
exploration drilling, is anticipated in 2003-2004. In Block 7/1, a 3-D seismic
survey is currently being acquired; Paladin will pay 50 per cent of the gross
costs of this survey to earn its 20 per cent interest in the block.

Denmark

Overall, our Danish interests contributed 7,233 boepd to total Group production
in the first half of the year (1H 2001: nil boepd).

In early July, Paladin announced that its stake in the Siri Field, the Stine-2
Field and the Stine-1 oil discovery would increase to 30 per cent as the result
of acquiring additional equity, through the partial exercise of its pre-emptive
rights in respect of the sale to DONG Efterforskning og Produktion A/S of
Statoil A/S's 40 per cent stake in these fields. This transaction has recently
been completed.

Both the Siri and Stine-2 Fields are continuing to perform well ahead of
forecasts at the time of our original acquisition in September 2001, and there
is scope for enhanced oil recovery from further drilling activity on both
fields.

Development plans for the Stine-1 oil discovery have been approved by the Danish
regulatory authorities. This discovery is to be developed as a sub-sea satellite
to the Siri Field and will come on-stream in the second half of 2003.

Plans to develop the nearby Nini and Cecilie Fields as satellites to the Siri
Field have also been formally approved by partners and the Danish regulatory
authorities. First production from these two fields, with estimated reserves of
65 million barrels, is scheduled for late 2003. Although Paladin has no direct
stake in either of these fields, it will derive significant economic benefit
once they are on-stream through the sharing of Siri Field operating costs and
from the receipt of tariff income.

Indonesia

The Group's assets in Indonesia have performed in line with expectations. Net
entitlement production averaged 6,928 boepd (1H 2001: 6,006 boepd). The increase
in Paladin's net entitlement production was due primarily to the fall in oil
prices relative to the first half of 2001. The South East Sumatra PSC (Paladin
7.5 per cent) and North West Java PSC (Paladin 2.5 per cent) areas both saw
continuing active reinvestment programmes to help arrest the natural decline in
production from existing fields.

The negotiation of a sales agreement in respect of gas within the South East
Sumatra PSC area is continuing; if successfully concluded, this would result in
the initial development of the 600 Bscf of gas reserves already proved but not
yet booked within the PSC area.

A well to evaluate a prospect in the southern part of the Blora PSC area,
drilled in the early part of the year, was unsuccessful.

United States

Production for the half year averaged 319 boepd, of which 71 per cent was gas;
this represents only 1.2 per cent of total Group production, and a reduction of
32 per cent in production as compared to the same period last year, reflecting
the sale of peripheral properties in 2001 and natural field decline in Fort
Chadbourne, the remaining property.

Tunisia

During the first half of the year, preparations were made for the drilling of
our first exploration well in the Borj el Khadra permit area in southern Tunisia
(Paladin 10 per cent). The well, Adam-1, spudded on 7 July 2002 and was recently
suspended as an oil discovery. The well encountered approximately 30 metres
(net) of oil bearing sandstones in four zones and was successfully tested. The
well has been completed ready for production and will be brought on-stream early
in 2003 through existing production facilities some 12 km away, following
regulatory approval of a field development plan. Several analogous leads and
prospects have been identified, and the success of Adam-1 provides encouragement
for further exploration in the permit area.

Product Prices/Hedging

Realised prices in the first half of 2002 averaged US$22.12 per boe before any
impact from oil price swaps, compared to US$25.27 per boe over the same period
in 2001.

The Company entered into a number of oil price swaps based on dated Brent for
the first half of 2002 as part of its overall risk management programme. 100,000
bbl per month were swapped for January to June 2002 at an average price of
US$24.11, resulting in an increase in turnover of £0.3 million. These volumes
represented approximately 35 per cent of the Group's lower taxed production over
the period.

Further oil swaps have been entered into for the period between July 2002 and
June 2004 as detailed below, representing approximately 40 per cent of the
Group's projected lower taxed production over this period.

                                                                                                    Average price
Period                                                            bbl                                 US$ per bbl

2002, second half                                             800,000                                       23.35
2003                                                        1,500,000                                       23.10
2004, first half                                              300,000                                       23.26


Finance

Operating cash flow, being defined as earnings before interest, tax and
depletion (and after allowing for movements in working capital), increased to
£35.3 million for the first half, compared to £28.3 million in the first half of
2001. After payment of £43.8 million for the purchase of further Norwegian,
Danish and UK interests (inclusive of adjustments), capital expenditure of £10.1
million (1H 2001: £9.6 million), cash taxes of £6.6 million (1H 2001: £5.0
million) and net interest payments of £1.0 million (1H 2001: £2.0 million), net
debt at 30 June 2002 was £71.0 million (including finance lease liabilities of
£8.3 million), compared with £44.4 million at 31 December 2001.

Financing cash flows include the receipt of £4.4 million from the sale and
leaseback of the Njord Field storage tanker in respect of Paladin's original 7.5
per cent interest. A similar amount, currently included in debtors, will be
received in September in respect of the additional interest acquired from the
Norwegian State. No profit has been recognised on the disposal of the tanker, in
accordance with UK accounting practice.

In mid-August, the Company announced that it had signed a US$250 million Senior
Secured Revolving Credit Facility with a syndicate of major international
lending banks led by J.P. Morgan plc. The banking market was initially
approached for a US$200 million facility, and this was increased to US$250
million following a strong reception for the transaction. This new facility
provides the Company with substantial headroom to pursue further growth
opportunities as and when they arise, as well as to fund the development
programme in the existing portfolio.

Acquisitions

The first half of 2002 has been very active for the Company. In the UK, Paladin
increased its stake in the Goldeneye Field from 3 per cent to 7.5 per cent as
the result of an £11.6 million acquisition from Shell, and we expect to complete
the recently announced acquisition of a 14.49 per cent stake in the Ross Field
for US$22 million by early October. The Company was also successful in acquiring
a 20 per cent stake in three exploration blocks in the UK 20th Offshore
Licensing Round.

In Norway, the Company acquired a further 7.5 per cent stake in the Njord Field
and a 20 per cent stake in the Brage Field for a total of £26 million from the
Norwegian State, as well as acquiring interests in Blocks 1/2 (35 per cent) and
7/1 (20 per cent), which have exploration and appraisal potential.

In Denmark, through the partial exercise of its pre-emptive rights as an
existing partner, Paladin increased its stake in the Siri and Stine-2 Fields and
the Stine-1 oil discovery to 30 per cent at a cost of £10.7 million.

The asset trading market continues to be very active, with numerous
opportunities under evaluation by Paladin.

Board Positions

As announced on 24 June, Daniel Stewart-Roberts was appointed as Finance
Director, and joined the Board on 1 August. Prior to joining Paladin, he was
Accounting and Tax Director of MOL Rt., the Hungarian integrated oil and gas
business.

Over the last four years, Cuth McDowell has had board responsibility for
financial as well as commercial and business development activities. Given the
recent growth in the Company's asset base, and with the appointment of Daniel
Stewart-Roberts, Cuth is now focussing on his commercial and business
development responsibilities.

Outlook

The Group's net production for the fourth quarter of 2002 is expected to average
35,000 boepd, assuming early October completion of the Ross Field acquisition.
Annualised 2002 production will increase from the previously anticipated 29,000
boepd to approximately 30,000 boepd.

Given the near-term commodity price outlook, the Company is set for a strong
second half financial performance to complement the first half results. We
remain confident that we will continue to identify and acquire assets on terms
which will contribute to the further development of the Group for the benefit of
our shareholders.

                                                              J. Malcolm Gourlay
                                                                        Chairman
                                                               10 September 2002


Group Profit and Loss Account
For the six months ended 30 June 2002


                                                     Six months ended        Six months ended              Year ended
                                                         30 June 2002            30 June 2001        31 December 2001
                                         Note                                   (as restated)           (as restated)
                                                                 £000                    £000                    £000

Turnover                                    2                 75,732                  49,769                 104,713

Cost of sales
Production costs                                             (25,545)                (14,655)                (35,846)
Depletion and depreciation                                   (15,643)                 (8,208)                (22,664)
Exploration expenditure written off                                 -                       -                 (2,487)

Gross profit                                                  34,544                  26,906                  43,716
Administrative expenses                                       (1,340)                 (1,231)                 (2,462)

Operating profit                            2                 33,204                  25,675                  41,254
Interest                                                      (1,651)                 (1,866)                 (3,498)

Profit before taxation                                        31,553                  23,809                  37,756
Taxation                                    3                (21,299)                (17,018)                (26,987)

Profit after taxation                                         10,254                   6,791                  10,769
Dividend                                    4                 (1,271)                       -                       -

Retained profit for the period                                 8,983                   6,791                  10,769

Earnings per share                                              4.05p                   3.24p                   5.00p
Dividend per ordinary share                 4                   0.50p                       -                       -

Weighted average number of shares                        253,171,584             209,478,911             215,427,204



Group Statement of Total Recognised Gains and Losses
For the six months ended 30 June 2002

                                                                   Six months ended Six months ended            Year
                                                                       30 June 2002     30 June 2001           ended
                                                            Note                       (as restated)     31 December
                                                                                                                2001
                                                                                                       (as restated)
                                                                               £000             £000            £000

Profit for the period                                                        8,983             6,791          10,769

Unrealised foreign exchange differences                        5            (9,141)            6,860              68

Total recognised (losses)/gains for the period                                (158)           13,651          10,837

Prior year adjustment                                          1           (10,935)

Total recognised losses since last accounts                                (11,093)



Group Summarised Balance Sheet
At 30 June 2002
                                                                                                          At
                                                                       At               At  31 December 2001
                                                             30 June 2002     30 June 2001     (as restated)
                                                                             (as restated)              £000
                                                                     £000             £000

Fixed assets                                                     192,229          148,112           161,607

Current assets
Stock                                                              1,315            1,236             1,595
Debtors                                                           39,264           16,089            14,958
Cash at bank and in hand                                                -              51                  -

                                                                  40,579           17,376            16,553

Creditors: amounts falling due within one year                   (39,602)         (18,428)          (18,660)

Net current assets/(liabilities)                                     977           (1,052)           (2,107)

Total assets less current liabilities                            193,206          147,060           159,500

Creditors: amounts falling due after one year

Long term debt                                                   (62,614)         (51,071)          (44,379)
Obligations under finance leases                                  (8,273)                -                 -

                                                                 (70,887)         (51,071)          (44,379)

Provisions for liabilities and charges                           (21,440)         (10,623)          (14,152)

Net assets                                                       100,879           85,366           100,969

Capital and reserves
Called up share capital                                           25,325           21,069            25,300
Share premium                                                     44,181           29,952            44,138
Profit and loss account                                           31,373           34,345            31,531

Equity shareholders' funds                                       100,879           85,366           100,969





Group Cash Flow Statement
For the six months ended 30 June 2002

                                                              Six months ended Six months ended       Year ended
                                                                  30 June 2002     30 June 2001 31 December 2001
                                                                          £000             £000             £000

Operating profit                                                       33,204           25,675           41,254

Depletion and depreciation charge                                      15,643            8,208           22,664

Increase in working capital                                           (13,515)          (5,600)          (2,910)

Decrease in provisions                                                       -                -              (9)

Net cash flow from operating activities                                35,332           28,283           60,999

Returns on investments and servicing of finance                          (972)          (1,957)          (3,459)

Taxation                                                               (6,575)          (5,000)         (14,486)

Capital expenditure and financial investments

Capital expenditure                                                   (10,137)          (9,581)         (16,619)

Proceeds from sale of fixed assets                                           -                -           1,811

Acquisition of oil and gas assets                                     (43,799)         (40,819)         (70,550)

Investment in own shares                                                 (248)                -            (453)

Total capital expenditure and financial investments                   (54,184)         (50,400)         (85,811)

Net cash flow before financing                                        (26,399)         (29,074)         (42,757)

Increase in bank loan borrowings                                       21,807           25,349           20,505
Proceeds from lease financing                                           4,396                 -                -

Equity proceeds                                                            68            2,730           21,147

Decrease in cash in the period                                           (128)            (995)          (1,105)



Reconciliation of decrease in cash to movement
in net debt

Decrease in cash for the period                                          (128)            (995)          (1,105)
Increase in bank loan borrowings                                      (21,807)         (25,349)         (20,505)
Proceeds from lease financing                                          (4,396)                -                -

Change in net debt resulting from cash flows                          (26,331)         (26,344)         (21,610)

Exchange differences                                                    3,832           (2,311)            (433)
Lease financing proceeds outstanding                                   (4,136)                -                -

Movement in net debt in the period                                    (26,635)         (28,655)         (22,043)

Net debt at the start of the period                                   (44,408)         (22,365)         (22,365)

Net debt at the end of the period                                     (71,043)         (51,020)         (44,408)



Notes
(forming part of the interim statement)

1          Basis of preparation

The financial information contained herein does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985.  The
interim financial information has been prepared on the basis of the accounting
policies set out in the Group's accounts for the year ended 31 December 2001
other than where changes were necessary to implement FRS 19: 'Deferred Tax'.
The figures for the year ended 31 December 2001 have been extracted from the
accounts, as adjusted for the restatement due to the change in accounting policy
(described below). Those accounts have been filed with the Registrar of
Companies and contained an unqualified report.  The Company's auditors, Ernst &
Young LLP, have reviewed the interim financial information for the six months
ended 30 June 2002 and their report is set out on page 15.

The unaudited Group results have been prepared under the historical cost
convention and in accordance with applicable accounting standards using the
accounting policies set out in the Report and Accounts for the year ended 31
December 2001, with the exception of deferred tax as described below.

During the period the Group adopted the accounting standard FRS19 which requires
full, rather than partial provision to be made for deferred tax arising from
timing differences between the recognitions of gains and losses in the financial
statements and their recognition in the tax computation. In adopting FRS19, the
Group has chosen not to discount deferred tax assets and liabilities.

The prior year adjustment arising following the adoption of FRS 19 has decreased
shareholders' funds and increased provisions at 1 January 2002 by £10.9 million.
The comparative figures for 2001 have been restated to reflect the impact of
FRS19. Consequently the Group tax charge for the six months ended 30 June 2001
has increased by £3.6 million and the charge for the year ended 31 December 2001
has increased by £7.5 million.

2                    Segmental analysis

                                                Continuing operations                       Total
                                      UK   Scandinavia   Indonesia     North   Rest of
                                                                     America     World

                                    £000          £000        £000      £000      £000       £000
Six months ended 30 June 2002
Turnover                           7,349        50,230      17,329       824         -     75,732
Operating profit                   2,619        23,981       6,534        70         -     33,204

Six months ended 30 June 2001
Turnover                           4,600        26,494      17,037     1,638         -     49,769
Operating profit                   1,317        15,867       8,065       426         -     25,675

Year ended 31 December 2001
Turnover                          12,305        57,221      32,651     2,536         -    104,713
Operating profit/(loss)            4,271        27,321      12,048       101   (2,487)     41,254


3                    Taxation

The provision for taxation is based upon the estimated effective tax rate for
the full year.

4          Dividend

The Directors recommend the payment of an interim dividend of 0.5 pence per
share (1H 2001: nil).

5          Unrealised foreign exchange differences

The exchange differences arise mainly as a result of the translation of dollar
denominated fixed asset balances at the 30 June 2002 rate of US$1.53:£1.00,
compared to the 31 December 2001 rate of US$1.45:£1.00. The rate at 30 June 2001
was US$1.40:£1.00, and at 31 December 2000, US$1.50:£1.00.

Independent Review Report to Paladin Resources plc

Introduction

We have been instructed by the Company to review the financial information for
the six months ended 30 June 2002, which comprises the Group Profit and Loss
Account, Group Summarised Balance Sheet, Group Cash Flow Statement and Group
Statement of Total Recognised Gains and Losses and the related notes 1 to 5. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom.  A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed.  A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions.  It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit.  Accordingly we do not
express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2002.

Ernst & Young LLP
London

10 September 2002


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